Comparative financial statements for Weller Corporation, a merchandising company, for the year ending December 31 appear below. The company did not issue any new common stock during the year. A total of 700,000 shares of common stock were outstanding. The interest rate on the bonds, which were sold at their face value, was 10%. The income tax rate was 40% and the dividend per share of common stock was $0.40 this year. The market value of the company's common stock at the end of the year was $29. All of the company's sales are on account. Weller Corporation Comparative Balance Sheet (dollars in thousands) This Year Last Year $ 1,210 10,000 12,100 770 24,080 $ 1,360 6,600 11,500 610 20,070 9,200 46,938 56,138 $80, 218 9,200 42,606 51,806 $71,876 Assets Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment: Land Buildings and equipment, net Total property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Notes payable, short term Total current liabilities Long-term liabilities: Bonds payable Total liabilities Stockholders' equity: Common stock Additional paid-in capital $20,300 1,010 110 21,420 $18,900 760 110 19,770 9,400 30,820 9,400 29,170 700 4,000 700 4,000 Retained earnings Total stockholders' equity Total liabilities and stockholders' equity 44,698 49,398 $80, 218 42,706 $71,876 Weller Corporation Comparative Income Statement and Reconciliation (dollars in thousands ) This Year Last Year Sales $73,040 $65,000 Cost of goods sold 42,480 34,000 Gross margin 30,560 31,000 Selling and administrative expenses: Selling expenses 11,000 10,700 Administrative expenses 7,000 6,500 Total selling and administrative expenses 18,000 17,200 Net operating income 12,560 13,800 Interest expense 940 940 Net income before taxes 11,620 12,860 Income taxes 4,648 5,144 Net income 6,972 7,716 Dividends to common stockholders 280 350 Net income added to retained earnings 6,692 7,366 Beginning retained earnings 38,006 30,640 Ending retained earnings $44,698 $38,006 Venice InLine, Inc., was founded by Russ Perez to produce a specialized in-line skate he had designed for doing aerial tricks. Up to this point, Russ has financed the company with his own savings and with cash generated by his business. However, Russ now faces a cash crisis. In the year just ended, an acute shortage of high-impact roller bearings developed just as the company was beginning production for the Christmas season. Russ had been assured by his suppliers that the roller bearings would be delivered in time to make Christmas shipments, but the suppliers were unable to fully deliver on this promise. As a consequence, Venice InLine had large stocks of unfinished skates at the end of the year and was unable to fill all of the orders that had come in from retailers for the Christmas season. Consequently, sales were below expectations for the year, and Russ does not have enough cash to pay his creditors. Well before the accounts payable were due, Russ visited a local bank and inquired about obtaining a loan. The loan officer at the bank assured Russ that there should not be any problem getting a loan to pay off his accounts payable-providing that on his most recent financial statements the current ratio was above 2.0, the acid-test ratio was above 1.0, and net operating income was at least four times the interest on the proposed loan. Russ promised to return later with a copy of his financial statements. Russ would like to apply for a $90,000 six-month loan bearing an interest rate of 8% per year. The unaudited financial reports of the company appear below: Venice InLine, Inc. Comparative Balance Sheet As of December 31 (dollars in thousands ) This Year Last Year $158.0 80.0 290.0 45.0 573.0 370.0 $943.0 $240.0 80.0 160.0 18.0 498.0 305.0 $803.0 Current assets: Cash Accounts receivable, net Inventory Prepaid expenses Total current assets Property and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Total current liabilities Long-term liabilities Total liabilities Stockholders' equity: Common stock and additional paid-in capital Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $281.0 40.0 321.0 - $165.0 30.0 195.0 - 150.0 472.0 622.0 $943.0 150.0 458.0 608.0 $803.0 Venice InLine, Inc. Income Statement For the Year Ended December 31 (dollars in thousands ) This Year $670.0 430.0 240.0 Sales (all on account) Cost of goods sold Gross margin Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses Net operating income Interest expense Net income before taxes Income taxes (30%) Net income 93.0 127.0 220.0 20.0 20.0 6.0 14.0 $ Required: 1-a. Based on the above unaudited financial statement of the current year calculate the following. Current ratio Acid-test ratio Number of times of the net operating income to the interest on the proposed loan 1-b. Based on the statement made by the loan officer, would the company qualify for the loan? 2. Last year Russ purchased and installed new, more efficient equipment to replace an older plastic injection molding machine. Russ had originally planned to sell the old equipment, but found that it is still needed whenever the plastic injection molding process is a bottleneck. When Russ discussed his cash flow problems with his brother-in-law, he suggested to Russ that the old equipment be sold or at least reclassified as inventory on the balance sheet because it could be readily sold. At present, the equipment is carried in the Property and Equipment account and could be sold for its net book value of $95,000. The bank does not require audited financial statements. a. Calculate the following if the old machine is considered as inventory. b. Based on the 2a above would the company qualify for the loan? c. Calculate the following if the old machine is sold off. d. Based on the 2c above would the company qualify for the loan? Required: Compute the following financial data for this year: 1. Accounts receivable turnover. (Assume that all sales are on account.) (Round your answer to 2 decimal places.) 2. Average collection period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.) 3. Inventory turnover. (Round your answer to 2 decimal places.) 4. Average sale period. (Use 365 days in a year. Round your intermediate calculations and final answer to 2 decimal places.) 5. Operating cycle. (Round your intermediate calculations and final answer to 2 decimal places.) 6. Total asset turnover. (Round your answer to 2 decimal places.) days 1. Accounts receivable turnover 2. Average collection period 3. Inventory turnover 4. Average sale period 5. Operating cycle 6. Total asset turnover days days